Market Watch

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

Train Wreck in Corn

Jul 02, 2009

Market Watch Summary with Alan Brugler

July 2, 2009

Train Wreck in Corn

Corn futures had the dubious distinction of posting the largest weekly decline among the tracked commodities, at 9.64%. Last week we talked about the bullish train in soybeans, but this week it was the corn that jumped the tracks. Nearby July futures are down 80 cents per bushel in three weeks, with half of that occurring this past week. As you likely know by now, the initial weakness was driven by concerns about livestock demand losses due to poor profitability, but this week’s decline was fueled by a larger than expected Planted Acreage number from USDA on Tuesday morning. At 87 million acres, and about 80 million harvested, the crop appears to be large enough to cover anticipated demand from all sectors while also allowing a rebuilding of stocks.

It is still a long time until the corn is in the bin, and there are debates about whether the final acreage will be this large (some was still being planted as the surveys were being taken) and larger questions about yields on late planted corn. The crop condition ratings at the moment suggest above trendline yields, but yields are most closely correlated to late July conditions, not late June. And, there is a developing El Nino weather pattern that can result in unusual weather patterns this fall. Not to be overlooked, this price weakness is a welcome relief for margin stressed livestock farms.

Wheat futures showed no evidence of bullishness. Prices ground lower by another 5 to 7% at the three exchanges. While Egypt did buy 60,000 MT of SRW from the US (which will show up in next week’s Export Sales report) it was a drop in the bucket. Overall sales are still lagging, and at least one large private analyst is calling for USDA to raised projected HRW production on the 10th. Part of the selling pressure clearly came from the USDA acreage report, which showed more durum and spring wheat plantings than traders had thought possible given the wet spring in the major spring wheat growing states.

Soybean futures were the bullish exception for the week, albeit mostly in the old crop July futures. There were zero delivery notices vs. July, as the cash market was strong enough that nobody wanted to risk losing control of the bushels, even for a couple weeks. USDA found 12 million more bushels of old crop in storage on June 1 than the trade had expected, but that is about 10 days worth of exports in the summertime and doesn’t by itself change the bullish old crop tone. New crop is a different matter. While there are some who are extremely bullish about 2010 soybean price prospects, they are assuming growth in world demand that may or may not occur at this price level. What we do know is that USDA hiked the acreage estimate to 77.4 million, a record high. If yield prospects hold up, a record crop is likely. The world will want a lot of those beans in the first half of the marketing year, before fresh South American supplies are available in February. Brazilian seed firms report strong demand for soybeans and anticipate larger 2009/10 acreage.

Below is a table showing the net weekly changes and 4 week history of selected agricultural futures contracts:

Market Watch

Weekly

Weekly

06/12/09

06/19/09

06/26/09

07/02/09

Change

% Change

July Corn

$4.26

$3.99

$3.84

$3.46

-0.39

-9.64%

July CBOT Wheat

$5.85

$5.55

$5.34

$5.00

-0.34

-6.12%

July KCBT Wheat

$6.37

$6.15

$5.90

$5.55

-0.35

-5.65%

July MGEX Wheat

$7.33

$6.99

$6.67

$6.18

-0.49

-7.05%

July Soybeans

$12.46

$11.79

$12.01

$12.43

0.42

3.56%

July Soy Meal

$422.70

$390.00

$405.00

$411.20

6.20

1.59%

July Soy Oil

$37.16

$36.53

$36.08

$35.18

-0.90

-2.46%

August Live Cattle

$81.60

$82.13

$82.40

$84.87

2.47

3.01%

Aug Feeder Cattle

$97.57

$98.10

$98.97

$103.45

4.48

4.57%

July Lean Hogs

$59.80

$61.43

$56.70

$59.97

3.27

5.32%

July Cotton

$56.10

$51.56

$52.54

$56.80

4.26

8.26%

July Oats

$2.39

$2.12

$2.09

$2.16

0.06

2.95%

July Rice

$12.93

$12.30

$12.13

$12.78

0.65

5.24%

Cotton futures were the bull leader this week. The market had been pushed down hard, and snapped back on a mix of improved export sales, delays in the Indian monsoon, an El Nino threat to the next Australian crop, and some good old fashioned speculator buying and short covering. USDA told us that all cotton acreage will be 9.054 million, based on the June survey. Some high yielding Texas acreage appears to be vacant statistically, but not when you drive around those districts. It may take another month or two (or the FSA data) to determine whether that ground ended up in cotton.

Cattle futures rose $2.47 for the week in the August contract, which is maintaining a premium to where the June went off the board on Tuesday. The net gain for the week was 3.01%. There was some cash cattle trade reported on Thursday at $83, up $1 from the previous week. This is a victory for the feedlots, given the weakness being reported in the product value. That said, those cattle could be cheap if beef prices rally sharply next week as retailers restock following the long holiday weekend. Wholesale prices were still slipping on Thursday, with choice quotes at $137.89.

Hogs had a solid advance in the futures which wasn’t matched in the cash market. It is a futures market, and may be anticipating tighter numbers in August and/or improved demand as Russia re-opens imports from some US plants. Shorts also have to take profits occasionally. The lean pork cutout was up and down, mostly down for the week. On Thursday, the carcass quote bounced back to $55, aided by a long awaited rebound in the ham quote from the $35 where it has been stuck to $41.96.

Market Watch:The trade will be coming off of a three day week end, the infamous July 4th weekend that can sometimes signal tops and bottoms in markets, but other times is just an excuse for some volatility! USDA’s Crop Condition ratings on Monday night will get some attention, particularly whether the ratings continue to improve at a time of year when they usually begin to decline. July cotton futures will expire on Thursday. The major USDA reports for the week will be issued on Friday morning, including Crop Production and the WASDE supply and demand report. Some of the main changes are already known, such as US wheat ending stocks and increased US corn acres and soybean acres.

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Anonymous7/5/2009 08:51 AM

Minnesota ag reported 1.5 million less spring wheat acres. They had a pocket of pp acres. I think North Dakota will match those acres of pp. I dont really know where all of the spring wheat acres are coming from. I think we need some checkoff money to fund some jobs to validate acres planted, acre failed, acres hailed out, and prevented planting acres. This is one bullish aspect for producers this year and information will be slow. Bearish information tends to make its way to the market instantaneously where bullish seems to drag. Spring wheat in North Dakota and Minnesota showing signs of heat stress already on sandier soils. Texas and Oklahoma yields not good. Northern Kansas is where yields bumped. Two to three states with below normal yields and two to three with alright yields can only mean an average crop at best.

Anonymous7/6/2009 05:46 AM

You have to remember that the USDA is just artificially inflating ALL these crop acreages so that the livestock and ethanol companies can stay in business. Just like last year they'll slowly errode the yield and acreages thru the fall and into early winter so that the farmers will be happy and market some grain at the higher prices. It's all fun and games. I agree about verifying the acerages but it's hard to find anyone with integrity anymore.

Anonymous7/7/2009 04:21 PM

Nice to hear a comment with the same message. Thanks I no longer have to feel like the lone ranger.